The founder of Mobius Capital Partners, once described as the “Indiana Jones of emerging markets,” recently told Barron’s that he sees a “strong global economic recovery that should finally help emerging markets outperform after a decade lagging behind developed markets and despite U.S. tensions with China.”
Here are some takeaways from Mobius’s comments:
- “With the average age [of people] in these countries lower than that of the developed markets, their recovery [from Covid-19] will be faster. The vaccine, of course, helps, but more important is the psychology. As people begin to feel safe, you’ll see economic activity pick up very fast.”
- Technology is also affecting emerging markets quickly, says Mobius, leading to better asset quality.
- Emerging market currencies are strengthening against the dollar, “which itself is a positive. But more importantly, the psychology of a currency revaluation is very powerful for investors.”
- India has announced changes that will “have a big impact driving economic growth,” including an opening of the insurance market to foreign investors and increased privatization of state-owned businesses.
- On a potential U.S. China decoupling, Mobius asserts, “I don’t think it’s going to happen. The government can say one thing, but the companies can say another. They don’t have to be in the U.S.; a lot are setting up in Dubai or the Cayman Islands.”
- Inflation: According to Mobius, inflation numbers are “based on a basket that’s changing every year.” Because of technology, he argues, we’re getting a deflationary trend where things are getting cheaper—and that’s accelerating in the emerging countries. “This measure is not a very good way to make policy.” He suggests instead looking at wages and income and measuring “the quality of life.”
- The dollar: Mobius believes “you’re going to find a general retreat from the U.S. dollar,” but the process will be slow. He adds, “The most critical aspect for the dollar is the degree to which it can be used and traded around the world; that’s very important to people.”